In response to the evolving challenges of money laundering and the financing of terrorism, the Council of the European Union and the European Parliament announced a significant milestone on 17 January 2024, shaping the future of the European Union's Anti-Money Laundering (AML) framework.
This landmark package includes (i) the formulation of a new Regulation, known as the Anti-Money Laundering Regulation (the AMLR), introducing a unified and directly applicable rulebook across the EU; (ii) the enactment of the sixth Anti-Money Laundering Directive (AMLD 6), addressing institutional provisions and implementing measures at the national level; and (iii) a political accord on the creation of the EU-wide Authority for Anti-Money Laundering and Countering the Financing of Terrorism (the AMLA). These initiatives signify a robust commitment to enhancing the EU's capacity to combat financial crimes by harmonising regulations, expanding the scope of obligations and reinforcing supervisory mechanisms. They also reflect a concerted effort to fortify the EU's resilience against emerging threats in the realm of money laundering and terrorist financing.
Background
The recent developments in the AML framework stem from a longstanding commitment to combat illicit financial activities and terrorist financing within the region. Dating back to 1990, the EU has been actively involved in AML measures, with the regulatory landscape undergoing periodic revisions to adeptly tackle emerging challenges. A pivotal moment in this trajectory occurred on 7 May 2020 with the presentation of an Action Plan by the European Commission. Building upon this, on 20 July 2021, the Commission introduced a comprehensive AML package consisting of three legislative proposals aimed at creating a more coherent AML regulatory and institutional framework.
The subsequent political agreements reached by the Council and the Parliament signify a crucial step forward in solidifying the EU's commitment to addressing money laundering and terrorist financing risks through a harmonized and reinforced regulatory framework. The agreed-upon measures encompass an extended scope of obliged entities, enhanced due diligence obligations, countermeasures for high-risk countries, and strengthened regulations on cash payments and beneficial ownership transparency. As these agreements mark the completion of substantive negotiations, attention now turns to the finalisation and formal approval of the AMLR, AMLD 6, and AMLA Regulation, further underscoring the EU's dedication to fostering a secure and resilient financial ecosystem.
AML Regulation (AMLR)
AMLR aims to establish a "single rulebook," providing detailed and directly applicable AML rules throughout the EU. The scope is extended to include Crypto-asset service providers (CASPs), traders of luxury goods, traders of luxury cars, airplanes, yachts, traders of cultural goods, and professional football clubs and agents. It provides for:
- Specific obligations for enhanced due diligence, including CASPs for cross-border correspondent relationships, credit and financial institutions dealing with high net-worth individuals, and all obliged entities for transactions involving high-risk third countries.
- Application of additional specific EU or national countermeasures for high-risk countries.
- Introduction of a maximum limit of €10,000 for cash payments, with an option for Member States to impose a lower threshold. Identification requirements for occasional transactions in cash between €3,000 and €10,000.
- Extensive rules on the identification and registration of beneficial owners, including a set threshold of 25%, clarification of the definition, rules for multi-layered ownership structures, and registration for non-EU entities operating in the EU.
Sixth AML Directive (AMLD 6)
The AMLD 6 focuses on AML-related rules that require national transposition. It includes:
- Reinforced rules for beneficial ownership registers, including verification of accuracy, access for authorities and the public, digital access, interconnection of national central registers, and inclusion of historical information for up to 10 years.
- Access to real estate registers for criminal investigations through a single access point.
- Reinforcement of Financial Intelligence Units (FIUs) with increased powers, cooperation, and requirements to apply fundamental rights.
- Clarification and strengthening of the role, powers, and obligations of supervisory authorities.
- Requirement for both EU and national risk assessments, with the Commission empowered to make recommendations to Member States.
Authority for Anti-Money Laundering and Countering the Financing of Terrorism (the AMLA)
AMLA will have direct and indirect supervisory powers in the financial sector, overseeing selected high-risk entities and assisting national supervisors for non-selected entities. The governance structure of AMLA comprises a general board and an executive board, with the Commission holding no veto rights. AMLA will:
- manage whistleblower reports from the financial sector and offers assistance to national supervisors in the non-financial sector, including conducting peer reviews, investigating AML breaches, and issuing recommendations and guidance documents;
- analyse suspicious transactions, manage FIU.net, and ensure effective cooperation between FIUs.
Next steps
The final step required for the resolution of the legislation is to determine the location of the AMLA. Applications from Member States are being assessed, with a final decision expected after hearings. Once the location is decided, the texts of AMLR, AMLD 6, and AMLA Regulation will be finalised and formally approved by the Council and the European Parliament. AMLD 6 and AMLR will need to be implemented into national laws within three years from entry into force.
Final remarks
The recent agreements on the EU AML framework represent a significant stride towards a more robust, harmonised, and effective regulatory landscape. The establishment of AMLR, the AMLD 6 and AMLA reflects the EU's commitment to addressing emerging financial risks. These measures not only broaden the scope of obligations for entities but also enhance due diligence, transparency, and cooperation across borders.
For businesses in Cyprus, aligning with these regulations is crucial, as it ensures compliance with the new EU AML framework and enhances the country's resilience against emerging financial risks. Adapting to the updated rules and incorporating robust anti-money laundering measures will be imperative for maintaining the integrity of financial operations and fostering trust within the European business landscape.
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